Experts Say China Deal Could Be Weak, May Leave 25% Tariffs in Place

Trade experts are doubtful that a high-quality trade deal China is coming in a month, but the quality -- and what will happen with the tariffs on Chinese goods -- is still blurry. "The president, for all his self-proclaimed negotiating prowess, really seems to have negotiated himself into a corner on this," said Phil Levy, senior fellow on the global economy at the Chicago Council on Global Affairs. "He escalated way too fast with the tariffs. He honestly believed if he threw around really big numbers the Chinese would cave. They did not. He got stuck with some threats that he didn’t really want to carry out."

Levy said advisers are telling President Donald Trump that hiking tariffs to 25 percent on $200 billion in imports from China would cause a recession. "We’ve now made threats that are not credible," he said. "The Chinese watching this have to conclude, why should they do anything uncomfortable?"

Edward Alden, an international business professor at Western Washington University, said that he doesn't think the deal can be concluded without at least lifting the 10 percent tariff on the largest tranche of Chinese imports. "It's hard for me to imagine that the Chinese would make a set of serious commitments unless some or all of the U.S. tariffs are removed," he said. He said it doesn't seem to him, with the tenor of Trump's comments lately, that only the 10 percent will be rolled back. He said that keeping the 25 percent tariffs on $50 billion in imports, with the understanding they could be lifted later if China keeps its promises, would be "a potentially good outcome," even though he never advocated for tariffs in the first place.

Trump told governors from around the country Feb. 25 that "we're going to have a signing summit" with China, and that "we're getting very, very close" to a deal. He said on Twitter in the afternoon that the China trade deal is in advanced stages. The day before (see 1902240001), he had tweeted that the tariffs will not escalate on March 2 because "the U.S. has made substantial progress in our trade talks with China on important structural issues including intellectual property protection, technology transfer, agriculture, services, currency, and many other issues."

Alden said Trump has "undermined [U.S. Trade Representative Robert] Lighthizer’s leverage dramatically. I think Trump’s cut him off at the knees. ... the fact that he’s touting this deal as essentially finished when it’s obviously not."

One China expert connected to the White House and USTR -- Derek Scissors at the conservative think tank the American Enterprise Institute -- said the administration is not negotiating with the Chinese about lifting the 25 percent tariffs on $50 billion in imports, only the 10 percent tariffs on $200 billion in imports. Scissors said it's been obvious to him since November that the administration did not have the political will to ratchet up the tariffs on the largest bucket of imports. Although he is angry about how the China confrontation has gone, he said the rumors that the president's giving away everything are probably overreactions, because if he were, China would be rushing to get it signed. Still, he said, it is not going to be a comprehensive deal that will make structural changes. "I think this is going to be an empty, fraudulent deal," he said. "We’re asking the Chinese for difficult sweeping, controversial changes in their practices. We don’t have an enforcement mechanism."

What Scissors and Alden said they fear most is that Trump will throw in a reprieve for Huawei's chief financial officer, who was arrested in Canada and who the U.S. is seeking to extradite in a criminal case. Alden said "it’s not necessarily that I think the case against her is a particularly strong one, it’s that I think the message to U.S. allies [if it happens] is: Don’t cooperate with the United States, because the United States is willing to let you pay the price and back away for its own nationalistic economic reasons." He said it would be catastrophic.

Scissors said people in the administration told him Feb. 25 that Trump wants to stop the prosecution of the Huawei executive, who is the founder's daughter. Scissors said he doesn't think Trump can do that legally, that stopping a criminal prosecution is a far different thing from directing the Commerce Department to reverse itself on telecom firm ZTE (see 1807130057). He said if he does, he expects there to be resignations, perhaps in the Justice Department, over it, and that Congress might rise up against his China policy. Up to this point, "they’re willing to make their unhappiness known but they’re not willing to do anything that matters," Scissors said.

Alden said a deal that lifts all the tariffs -- even if the criminal case is not interfered with -- "leaves the U.S. in a considerably worse position. Because at that point, we will have used what is the most aggressive strategy the United States is willing to use, and get little to nothing for it."